Wealth management group True Potential is calling on parents and guardians to consider investing in a Junior ISA to help their child get a headstart in life. A person who set up a Junior ISA for their child could accrue savings of more than £278,000 by the time they turn 18.
A person can invest up to £9,000 a year in a Junior ISA, with any deposits avoiding income tax, while any amounts that are taken out of the account avoid capital gains tax.
The group calculated if a person maxed out a stocks and shares Junior ISA each year from a child’s birth, if the account grew at the industry standard of six percent, the pot would reach £278,150.87 by the time of their 18th birthday.
This would be enough to buy a first home, with the average first-time house priced at £236,783.
The funds could also go towards paying for a three-year university degree, with tuition fees currently at £9,250 a year.
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Anyone can invest in a child’s Junior ISA, including grandparents, aunts and uncles, or family friends.
Daniel Harrison, chief executive of True Potential, said: “Saving for your children’s future can seem complicated but it needn’t be.
“If you start early and get into a good routine of saving small amounts regularly, then you can generate a lot in the long term.
“We always advise people to work out a realistic long-term plan with a tangible goal that you’re aiming to achieve for your child, whether that be supporting them through university, getting their first car, or saving for a deposit on their first home.”
For a Junior ISA, people can either set up a cash ISA or a stocks and shares ISA. The parents or guardians manage the account although the funds belong to the child.
The child can begin to manage the account when they turn 16 but they cannot withdraw funds until they turn 18.
Britons have just two days to use up their ISA allowance for this financial year, with the new tax year starting on April 6.
A person can invest up to £20,000 in one or more ISAs each tax year. People can invest in cash ISAs, stock and shares ISAs, innovative finance ISAs or Lifetime ISAs.
Another option for younger savers looking to save up for the future is the Lifetime ISA, which comes with an attractive 25 percent bonus on any deposits.
A person can set up a Lifetime ISA once they turn 18 and as long as they are under the age of 40.
A person can deposit up to £4,000 each tax year, with a 25 percent bonus on any deposits, with a potential £1,000 bonus each year. They can deposit into the account up to the age of 50.
The funds have to go towards a person’s first house or they can be withdrawn once a person turns 60, or if they are terminally ill with less than 12 months to live.
If a person withdraws funds for any other reason, they will lose the 25 percent bonus and face a withdrawal charge, meaning they will lose money.
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